## Doom Weapons Case:** Manipulating Numbers Answer**

**Question:**In how many years after launch will Future Industries break-even on the P1X?

**Answer:***To answer this, I’ll***calculate the cumulative costs that Future Industries will have incurred each year**after launch of the P1X and c**ompare this to the revenue they’re expecting**to generate. Just by eyeballing the numbers, it seems like**they’d break even around about the 3rd year after launch**.*To calculate the***total cumulative cost**at the end of:*Year 1 after launch**= (Development cost) + (Y1 sales) x (Unit production cost)**$30,000,000 + (10,000 x $1,000)**$40,000,000*

***Year 2 after launch**= (Y1 cost) + (Y2 sales) x (Unit production cost)**($40,000,000) + (15,000 x $1,000)**$55,000,000*

*The***same logic applies to calculating the other years**

*To calculate the***total cumulative revenue**at the end of:*Year 1 after launch**= (Y1 sales) x (Selling price)**(10,000 x $2,000)**$20,000,000*

*Year 2 after launch**= (Y1 revenue) + (Y2 sales) x (Selling price)**($20,000,000) + (15,000 x $2,000)**$50,000,000*

*The***same logic applies to calculating the other years***I don’t need to do any more calculations to say that, as I thought earlier, Future Industries will***break even in the 3rd year after launching the P1X**. Even better, these numbers suggest that they’ll break even**towards the beginning of the year**.*I have***2 quick thoughts**about this calculation:*The first is that the ‘***ramp-up’ time in Future Industries’ sales forecasts seems too rapid**. Sales for the product seem to peak’ at 20,000 units- the current forecast predicts that achieve half this number of sales will be reached a year after launch. This looks aggressive, particularly because military buyers might well need to do extensive testing on a product before adopting it widely*The second is that whilst we’ve taken into account all of the product’s***development costs**in our calculation,**most of these costs will probably have been incurred already**since the product is launching next year. Therefore, if our client does proceed with purchasing Future Industries, the ongoing investment required to bring the P1X to the market should be reasonably low